Imagine how Cecil B DeMille might have felt if someone told him that, after he'd finished shooting The Ten Commandments, there was a mistake in the labs - and that he'd have to part the Red Sea all over again. Indian director Mira Nair experienced this kind of sinking feeling after completing principal photography on Monsoon Wedding - the film that has only this week been awarded the accolade of the Golden Lion at the Venice film festival. A technician rang her to let her know that she had just lost several hours of footage to X-ray damage when the negative was being shipped back to New York after shooting.

"We didn't just lose the film. We lost the heat, we lost the monsoon, we lost the weather," Nair laments. One key scene was impossible to duplicate. She had borrowed the house of a wealthy industrialist friend for an ambitious dance sequence in an empty Gaudi swimming pool. The crew were allowed to film there for a single night. They knew they would never be able to return. There were dozens of actors and around 200 extras. Most of the scene was ruined.

But for the insurers, Monsoon Wedding might not have been completed at all. Nair's eventual claim was bigger than the entire budget of the film. It enabled her to reshoot three of the four destroyed scenes and to use digital technology to restore the pool sequence. "I could buy rain!" she says. "I couldn't afford the rain when we were shooting first of all. We didn't have enough money."

Now Nair is basking in the glory of her Venice win - the first woman to take the Golden Lion. Talking after the award ceremony on Sunday, she stated: "I didn't expect anything from this film. I wanted to make a small thing, but I am so very happy to say that it has become big."

Monsoon Wedding ("a love song to my home city") charts the events leading up to a last-minute arranged marriage in upper middle-class Delhi. It's a carnivalesque comedy-drama with an ensemble cast of 67 actors, who often all seem to appear in the same scene at once. Imagine an Altman movie done Punjabi style and you'll come close. Rich mingle with poor. ("It was important for me to show along with the upper middle-class - which is my own upbringing - the life of the working class. It's terrible and true that we have thousands of people just serving us and they all have a world, they all have a life, they all have a story.") Tradition and modernity clash. There is a babble of different languages. Secrets are broached, romances bud.

The screenplay, by newcomer Sabrina Dhawan, counterpoints the negotiations between the would-be bride and groom - a woman on the rebound from a love affair with her boss and a handsome young engineer from Houston, Texas - with the burgeoning love affair between a mobile-wielding entrepreneur and the family's beautiful but naive young maid. There's a wonderful performance from veteran actor Naseeruddin Shah as the father of the bride, a seemingly weak and forlorn figure who pleads for a loan from his golf partners to pay for the wedding.

This may be an epic, but it's one shot Dogme-style, with hand-held cameras. Not that Nair has abandoned Bollywood principles altogether. The subject matter wouldn't allow that. Indian weddings of the kind Nair shows are extravagant, drawn-out affairs. Families are prepared to plunge themselves into debt to ensure that the bride receives a send-off worthy of... a Bollywood movie.

Nair won't concede that her film is directly autobiographical, but admits her first wedding - and those of many of her close relatives - were on a similarly lavish scale to the one shown on screen. (Her second was a much more modest affair, "a beautiful ceremony where my husband's father wrote a poem, my niece read the poem, and we were then declared married in two minutes flat.")

Prior to its release last October in India, Monsoon Wedding had already generated enormous enthusiasm among local distributors. Its improvisatory style and naturalistic detail also startled some viewers. Nair repeats the disbelieving remark of a well-known Indian pop star after seeing a rough-cut of the film: "When the character goes to sleep, she is in a crumpled nightie!" He was, Nair says, so used to the make-believe of Bollywood films that her film took him utterly by surprise. "This man had actually seen his first realistic movie. In Bollywood, they imitate. They mix, they match, they make their own things. There are 21 songs and dances, and about 48 costume changes every song and dance."

By contrast, Monsoon Wedding can hardly be described as kitchen-sink drama, but every prop - the furniture, the underwear, the saris, the jewellery and paintings - was taken from Nair's own family. She ransacked the homes and wardrobes of her mother, her sisters-in-law, her brothers. Shooting was chaotic: 30 days of orchestrated mayhem. "India is one billion people. There's no one typical family, but for the Punjabi middle-class, this is the real thing," Nair says.

The film is bound to shatter many western preconceptions about life in contemporary India. Rather than deal in stock images of poverty and disease, Nair portrays an India where social climbing and snobbery are rife. "It's about time people get educated about the complexity of our country... there are hundreds of thousands of people who live like this. There's a strange kind of imperialistic desire abroad to see India in that poverty sense. Of course, there are stories to be told about that, but it's time people are exposed to all the facets of our Indian life."

A former documentary-maker, the Harvard-educated Nair was nominated for an Oscar for her first feature in 1989, Salaam Bombay!, about the plight of the city's street children. On the face of it, Monsoon Wedding is lighter than her earlier work, which has touched on such subjects as Aids (My Own Country) and interracial romance (Mississippi Masala). Her 1996 film, Kama Sutra, provoked a mini-scandal in India by depicting lesbianism and was trimmed by the censors before its release. Here, it seems, the worst that can happen is that the wedding plans might go awry. The mood of benevolence turns out to be slightly deceptive. There's a surprisingly sinister sub-plot which only comes into focus in the final reel. The film is also very frank in its depiction of the love lives of its young protagonists. Even Nair sounds startled by recent changes in Indian society. "To see what young folks are up to is just unbelievable. The sexual revolution that is going on is awesome. I am gobsmacked."

Back in the US, Nair is already at work on a new HBO feature, Hysterical Blindness, which stars Uma Thurman and Gena Rowlands. After her tribulations with Monsoon Wedding, she'll find handling a pair of Hollywood stars easy enough. Not that she seems capable of ever making a chamber piece. "My movies always turn out to be very difficult," she frowns. "On Kama Sutra, I remember when we were using 80 elephants, sweating in the sun. The crew were complaining and I was saying, 'Listen guys, next picture will be sushi in Paris in a room with two people.' Every time I start a movie, I say I'll make it simple. Every time I end up with this circus."